Special Market Update
Grain Market Commentary
Monday, August 3, 2020
By Chris Hillburn, Senior Merchant, The Andersons
After testing the lows last week of $3.15, September corn started the week with a gain of 1.5 cts to $3.175. Lead month futures are back to trading $3.15 to $3.25 range which date back to September 2016 and then again in April/May 2020. December corn did not test its low of $3.22. Yield models and market talk are pointing to over a 180 bpa crop. Better crop conditions, rain, and cooler weather indicating bigger yields. There are still areas of concern on production, but unlike 3 weeks ago the concern is in individual Crop Reporting Districts vs entire states. If the market grinds lower and breaks out to the downside, support for both September and December corn is at the April lows of $3 futures.
On the demand side China’s Dalian Exchange is trading very high prices and extended limits. This is occurring despite Government Auction of Corn Reserves, which are getting bought up as they hit the market. All in all, indicative of strong demand from China. Also seeing high corn prices in the EU markets.
U.S. Dollar Index has been trading weaker and in general this is supportive of U.S. corn exports. As always, it is the Dollar vs Argentina Peso and Brazilian Real that has the strongest currency impact of how competitive U.S. exports are.
All in all, market has placed more emphasis on big supplies as opposed to strong export demand as we grind down to already low futures prices. One bushel increase in corn yields nationwide would make up for all the China Export business we have seen so far.
Underlying all this is the Corona Virus and the general economy of the world and the U.S. The Corona Virus impact is deflationary, with economic shutdowns, high unemployment and weak to negative economic growth. A deflationary economic environment is not friendly to most commodity prices. In the future, big stimulus packages and increased government spending on virus relief may or may not be inflationary, a positive for commodity prices. No evidence so far of inflation pressures, but Gold and Silver markets are in a strong rally, so market is anticipating the possibility. The potential Black Swan to corn prices is another major drop in oil prices and ethanol production due to virus related shutdowns and drop in demand for energy, as we saw in April 2020. This should be kept in mind as a risk management possibility. Reality seems to be that until we get an effective vaccine and revert to a more normal economy, anything is possible.
November Soybeans started the week up 3.75 cts and hit a high on Monday of just under $9. Trading range well define at the 50-day moving average of $8.80 and 200-day moving average of $9.06. A close above $9 - $9.06 opens would open the way to another leg up. China demand and uncertain weather into August keeping the market supported. The downside risk if from uncertain China/U.S. relations, with strong rhetoric from both sides hitting the news. Nothing is ever easy in the New Normal.